Universal Annouces It Will Not Renew iTunes Contract

Posted on Jul 2, 2007

Negotiation Tactic Or Rebellion??

Vivendi’s Universal Music Group notified Apple that it will not renew its annual contract to sell music through iTunes. Universal said that it would market music to Apple at will, a move that could allow Universal to remove its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future, these executives said. The declaration does not mean, that Universal will immediately yank its catalog from iTunes since the concern is expected to arrange a short-term sales agreement.

Universal is clearly marking a line in the sand in a negotiating tactic that will put increased pressure on Apple. CEO Steve Jobs however, may go mano-a-mano with the world’s largest music company in a massive showdown that reveals the widening rift between the major labels and iTunes, which many regard as a near-monopoly.

Theoretically, if Universal were to end its relationship with iTunes, Apple would lose inventory that accounts for one out of every three new releases sold in the United States, according to Nielsen SoundScan data.

Many analysts believe that the other major labels may follow Universal’s lead and remove their inventory off of iTunes, but this doesn’t appear to hold water since the second-largest label, SonyBMG, recently agreed to a new one-year contract with Apple.

The Future: Can Universal afford to pull its catalog off iTunes? Sales of digital music through iTunes and other sources accounted for more than 15 percent of Universal’s worldwide revenue in the first quarter, or more than $200 million. In the end, Universal will cave…